It seems to me that volume is an important thing to understand when trading (certain) price patterns or candlesticks. For example, consider a Dojo candlestick. There are 2 reasons why a Doji may form:

[ol]
[li]There are very few traders who are active within this period, so there is no stimulus causing prices to move
[/li][li]A lot of traders were active within this period, but bulls and bears had an equal influence over the market
[/li][li]
[/li][/ol]

In case 1, a Doji is unlikely to signify a reversal. In case 2, there is a possibility that the Doji signifies a shift in supply and demand within the market.

The problem seems to be, however, that volume is not measurable in forex. If this is the case, how can we understand the significance of potential reversal signals, such as Doji?

It seems to me that volume is an important thing to understand when trading (certain) price patterns or candlesticks…

The problem seems to be, however, that volume is not measurable in forex. If this is the case, how can we understand the significance of potential reversal signals, such as Doji?

Transaction volume (notional dollar-volume) is not directly measurable — that’s true. However, tick-volume (a count of price changes per time period) is measurable, and is readily available in real time in almost every trading platform.

And multiple studies have demonstrated that transaction volume and tick-volume move in tandem. That is, the pattern of rising and falling volume, and the occurrence of volume spikes, that we see in a tick-volume chart — is a reliable proxy for the transaction volume, which we can’t see.

The only significant difference between tick-volume and transaction volume is that tick-volume [I]includes numbers[/I] (an actual count of the price changes in each time period), whereas actual transaction volume (dollar-volume) [I]is not retrievable numerically[/I] by ordinary retail traders.

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There is a very large thread — 301 Moved Permanently — here on this forum which deals with the application of volume analysis to the trading of price patterns and candlestick patterns, such as the doji example you referred to.

Even the volume statistics you get on your platform will only reflect the liquidity feed from the broker you use, and may not be representative of the overall volume across all liquidity feeds.

“If this is the case, how can we understand the significance of potential reversal signals, such as Doji?”

A single doji, in fact a single candlestick of any kind, signifies very little. The only thing you can say about a doji is that it implies equilibrium between buyers and sellers at that very point in time that the candlestick closed. You have to use them in conjunction with the patterns and candlesticks that occur around them, to derive anything meaningful.

The problem seems to be, however, that volume is not measurable in forex.

I agree that that’s a problem.

However, you can look at the volumes of the current/next month’s [I]futures contract[/I] for the same pair (if trading the “majors”, anyway). Partly because of HFT-arbitrage, futures volumes give a very reliable indication of spot forex volumes.